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Three Considerations for Investors Hiring an OCIO Provider

Karen Manczko portrait photo

   By Karen Manczko
   Director, Institutional Relationships
   April 4, 2022

It can be challenging for institutional investors to know what to consider when selecting a trusted Outsourced Chief Investment Officer (OCIO) to manage their investments. An OCIO acts as a fiduciary and provides all-inclusive investment solutions, performing investment management functions and operational duties on behalf of its clients. We have written a number of brief articles that address the importance of an OCIO’s role in our Fiduciary Focus series.

So how do you select an OCIO that is right for your organization’s investment objectives? In my experience, there are three important considerations when selecting a trusted OCIO partner—the OCIO’s values and mission; its experience and expertise serving not-for-profit investors; and its long-term investment approach and performance track record.

1) Values and Mission

Mission-driven organizations look to their values to guide their higher purpose, including serving their stakeholders and communities. Partnering with an OCIO that holds similar values ensures that your goals and purpose are at the forefront of the work they perform on your behalf. At Wespath, it is important that we invest with asset managers that align with our values. For instance, one tenet of our investment program is to identify and retain qualified investment management firms that are women- and/or minority-owned. As of December 31, 2021, Wespath and its subsidiaries have allocated over $2 billion to women- and/or minority-owned firms.

2) Experience with Not-for-Profit Clients

Before joining Wespath back in 2013, I worked with a range of clients, from high-net-worth individuals to not-for-profit organizations. Not surprisingly, each investor type required very specialized support—for example, taxes and investment/client reporting can vary considerably depending on the type of client. Many OCIO providers focus on taxable entities and may not understand the nuanced operational needs of a not-for-profit organization. It is important the OCIO you engage has experience with investors like you, and not only understands your challenges and needs, but will help add value and efficiencies to your work.

In addition, many not-for-profits require several investment options to support their missions—longer-term options to provide support in perpetuity and shorter-term options with lower risk and higher liquidity for spending needs. This often requires investors to have multiple pools of assets. An experienced OCIO will provide custom allocations for each asset pool in accordance with the purpose, risk tolerance, liquidity needs and time horizon of each pool, and routinely check in to understand whether your organization’s spending needs have changed.

3) Proven Long-Term Track Record and Approach

An OCIO should be able to demonstrate a competitive, long-term performance track record with a proven investment approach. Periods of underperformance are inevitable, but in order to weather these dips it is imperative that your OCIO have a long-term, disciplined focus that will not deviate during periods of market stress.

In addition, having full transparency into your organization’s portfolio is key to a strong OCIO partnership. When reviewing an OCIO’s investment performance, the OCIO should provide actual fund performance over several time periods compared to appropriate benchmarks and peer universe comparisons, as well as details behind periods of the portfolio’s outperformance and underperformance.

Finding the right OCIO is an important decision for an organization. A successful OCIO partnership hinges on alignment in values, the right expertise, a long-term focus and of course trust.

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